Implementing an Incomes Policy

D E R E K R O B I N S O N *

Implementing an Incomes Policy

THIS PAPER will consider certain features of British incomes policy and will discuss some questions which may be relevant to the development and implementation of incomes policies in other countries, particularly developed economies.1 The methods used in Britain cannot be wholly adopted by others, but the problems which have arisen and the attempts at solutions may provide useful lessons.

A major assumption of this paper is that an incomes policy must be voluntarily accepted by both labor and management if it is to have more than short-term success.2 Although a total “freeze” can be imposed by government dictate it can seldom, if ever, be maintained for long, and will in almost all circumstances build up hostility which will lead to its own destruction. Another assumption is that trade unions provide a desirable means of expressing the democratic will in a pluralistic society; at the same time, I will suggest that the processes by which unions seek to achieve their objectives and influence government change during the course of introducing an incomes policy?

I will seek to demonstrate that a voluntary prices and incomes policy must go through four stages. These are (1) obtaining general acceptance of the need for a policy, (2) determining policy content, (3) establishing machinery for implementation, and (4) implementing the policy. These stages may not be distinct in practice, nor need they follow the same time-process as in Britain, but if a policy is to be firmly established, the stages will need to be completed.

It is not intended here to give a detailed factual account of the various phases of policy development in a strict time series; however, particular aspects will be considered in detail.* Before doing this let me briefly outline British policy.

* Senior Research Officer, Oxford University, Institute of Economics and Statistics, and Tutor in Economics, Balliol College, Oxford.

1 This paper was written while on sabbatical leave at the University of California, Berke- ley. Previously, I was an adviser to the National Board for Prices and Incomes, but the views expressed here are my personal views and should not be regarded as representing those of the Board or the Government. Nor do they necessarily reflect the opinions I might have in an “official” ca acity.

2 In alfdiscussion, unless there is an indication to the contrary, “incomes policy” will include prices as well as all forms of incomes.

3 Space limitations force me to be concerned rimarily with collectively bargained wages and salaries, but it should be remembered that faiure P to control other incomes or prices can seriously jeopardize such a policy.

4For a detailed and perceptive account, see Lloyd Ulman, “Under Severe Restraint: British Incomes Policy,” Industrial Relations, Vol. VI (May, 1967). See also, 3. Corina, The

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British Policy Today Central to British incomes policy is a requirement that proposals

to increase prices or pay be referred to the appropriate government department. Those proposals that adhere to the policy are left alone, although this does not imply specific government approval of the increase. Of the others, some are passed after discussion with the parties concerned, which may lead to modification. Some cases will be prima facie against the policy. Controversial cases may be referred to the National Board for Prices and Incomes.

This policy is largely based on voluntary understandings among organized labor, employers, and the government. The Prices and Incomes Acts of 1966 and 1967 provide a statutory base, Although the acts give the government apparently quite draconian powers, they are designed to permit phased implementation, which in turn is meant to encourage and buttress voluntary observance.

The important features of the 1966 Act were Parts I1 and IV. Part IV, which was intended to deal with the period of general nationwide “standstill” (July-De- cember, 1966) and “severe restraint” (January-June, 1967), was activated in Octo- ber 1966 and expired on August 11, 1967. Part IV did two things. First, it provided a legal defense for employers against civil action for breach of contract if, in the national interest, the employer chose not to honor a prior commitment to increase pay. Second, it aIlowed the government to place a compulsory standstill on prices and pay in specific firms or industries, freezing these to the level obtaining at July 20, 1966. The latter part was intended to compel observance, unlike previous government actions which were attempts to secure voluntary cooperation.

Part I1 permitted the government to require compulsory notification of proposed increases in prices, charges, dividends, and claims and settlements of wages and conditions of employment. It also allowed the government to require a one- month standstill while the department concerned considered the proposed increase. If a proposed increase was referred to the NBPI, a statutory standstill of up to three months could then be imposed pending the Board’s report. Once the Board reported, or the three months passed without the report being completed, no legal provision existed to prevent the parties from completely ignoring the policy requirements. Essentially, then, this part of the Act protected the voluntary nature of collective bargaining in that it did not dictate a particular settlement, but sought to influence the outcome of the bargaining by having the parties wait until the Board had reported. Part I1 was not activated until August 1967 when a second Act was implemented. In neither case, however, did the government implement a general requirement of compulsory notscation.

Sections 1-3 of the Prices and Incomes Act of 1967 were effected on August 12, 1967. Essentially, these sections permit the government to extend a standstill on a pay or price increase beyond the three to four months provided for in Part I1 of the 1966 Act after reference of the case to the NBPI. Now an increase can be de-

Development of Incomes Policy (London: Institute of Personnel Management, 1966); R. B. McKersie, “The British Board for Prices and Incomes,” Industrial Relations, Vol. VI (May, 1967), and, for the earlier period, M. Edelman and R. W. Fleming, The Politics of Wage-Price Decisions (Urbana: University of Illinois Press, 1965).

Implementing an Incomes Policy / 15 layed for three months after the Board has reported, if the Board so recommends.5

The legislation was a major step toward state control of collective bargaining and price determination. Nevertheless, it was designed to permit the government to introduce different provisions seriatum, holding back as long as possible measures which actually prevented the parties from arriving at, and implementing, decisions they had freely determined. The significance of such intervention in Britain should not be minimized, and not all trade unionists would place so favor- able an interpretation on the motives and actions of government.

The legislation before Parliament in May 1968 will go further. The bill provides for a compulsory standstill on specific wage or price increases of up to 12 months in the context of a reference to the Board and also for compulsory price decreases if the Board should so recommend. As in the case of the 1967 legislation, the government has the power to act only on Board recommendations, but may choose not to do so.

A White Paper, “Productivity, Prices, and Incomes Policy in 1968 and 1989,” contains the government’s latest policy statementeG This acknowledges that some prices will rise as a result of devaluation, but that very strict attention will be given to all price increases. Voluntary notification arrangements will continue. It is specifically pointed out that where manufacturers’ prices rose because of devaluation there should be no automatic maintenance of retailers’ percentage profit margins. A ceiling of 3.5 per cent is to be applied to all increases in incomes, including fringe benefits, at all levels, i.e., national, district, firm, or plant. But such increases must be justified under the four exception clauses set out in Cmnd. 2639, the first policy statement.’ The ceiling can be exceeded where agreements “gen- uinely raise productivity and increase efficiency” sufficiently to justify a larger increase, or where a major reorganization of the wage structure is desirable.

As its title indicates, the new White Paper gives a very strong impression that productivity is to be the major plank in the incomes policy and that the weight of the policy is to be changed from keeping down pay increases to encouraging agreements which increase productivity and thereby allow pay raises in excess of the 3.5 per cent ceiling.

With this introduction, let me now analyze the four stages through which British policy has developed and then discuss what seems to be the emerging relationship between the government and unions.

6Other sections of the Act which became immediately operative in July 1967 extended employers’ defense against breach of contract suits. Employers are free to honor past commit- ments if they so choose, unless the government refers the case to the Board and imposes a standstill order. Even if a case goes to the Board and the additional three months’ standstill is imposed after the report, there are no legal provisions to prevent an employer from granting back pay. Similar1 trade unions are not revented from exerting pressure for retrospective pay after the six ,on&’ standstill has expirel. However, as it is not possible to apply retrospective price increases, and any future price increase to cover retrospective wage payments would be examined within the government’s policy, which contains no provisions for such increases, it may be that in most cases the question of retrospection will be unsuccessful. But it is already apparent that in some cases the unions may be prepared to sit out their time under the order and then press for back ayment.

8 Cmnd. 3590 (Apri! 1968). 7 (April, 1965). Exceptions are allowed for (I) direct contributions to increased productivity,

(2) to stimulate manpower adjustments in the national interest, (3) when pay is too low to maintain a reasonable standard of living, and (4) to eliminate inequities.

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General Acceptance of the Need for a Policy All British governments since World War I1 have been concerned

with the inflationary pressures associated with very high levels of employment and the consequential, and sometimes independent, problems of balance-of-payments deficits. They have all tried at various times and in various ways to establish some form of wages policy. The Conservative administrations failed primarily because they were unable to secure trade union cooperation.8 By 1964, the election of a Labour Government and general recognition of the need to do something about the ills of the British economy created conditions in which it became possible to attract support for an incomes policy from both labor and management.

Employers had been concerned over inflation, seen as emanating primarily from wage pressures, and had pressed previous governments to take action. They had actively supported the establishment of the National Economic Development Council by the Conservatives in 1962 and had participated in this tripartite body’s exercises in “planning” and forecasting future growth rates. While it may be true that, broadly speaking, employers prefer a Conservative Government to a Labour one, there was a willingness to cooperate which transcended party attachments and reflected a deep concern about the country’s economic performance.

There was the same concern on the trade union side, only now the government was no longer seen as advocating a policy which appeared to be a thinly disguised attack on wages. “It is no good professing loyalty to a Labour Government if you refuse to work with them . . . ,” one leader said.g And another added, “Danny says ‘I want the Labour Government to stay in power.’ So we all do. But the whole point is this: unless it gets the support of the organised trade union movement it has no chance of staying in power for long.” lo

On December 16, 1964, representatives of the government, TUC, and employers’ organizations signed the Joint Statement of Intent on Productivity, Prices, and Incomes. The Joint Statement linked the government’s economic objectives of achieving a rapid increase in real output under full employment with their social aim of distributing the fruits of growth “in a way that satisfies the claims of social need and justice.” The government committed itself to the preparation of a general plan for economic development through the National Economic Development Council. Machinery was to be established to keep under review the general movement of prices and incomes and to examine particular cases in detail. Management and unions committed themselves to measures to increase productivity and to cooperate with the government’s policy and machinery. This historic landmark in the relations between labor, management, and the government helped formalize the concern with the country’s economic performance and signalled the beginning of joint cooperative action.

8For detailed discussion, see Corina, op. cit., Edehan and Fleming, op. cit., J. C. R. Dow, The Management of the British Economy: 1945-60 (Cambridge: University Press, 1964), and TUC Annual Reports.

9 Sir Harry Douglass in Report of a Conference of Erecutiue Committees of Afiliuted Organisations Held on 30th April 1965, on Productiuity, Prices and Incomes (London: TUC, 1965).

10 A. W. AlIen in ibid. “Danny” is D. McGarvey of the Boilermakers Union, a Ieft-wing trade unionist and Labour Party supporter who opposed incomes policy.

Implementing an Incomes Policy / 77 References to both social justice and economic planning were attractive to

British trade unions. They have a fairly long-held and deep-rooted attachment to the idea of economic planning. While this attachment may in the past have been expressed in rather vague and general terms, the attachment itself is strong. The unions were therefore prepared to support “their” government’s prices and incomes policy, within the context of a national plan which would be based on ideas of democratic planning and would give very high priority to social needs. Moreover, the General Council of the TUC was prepared to sign the Joint Statement without knowing the full details of incomes policy, or at least without these having been set out publicly.

Although there was some opposition to the idea of an incomes policy (the TUC General Council’s positive report on the subject was carried 6,649,000 to 1,811,000), most of the unions believed that the only alternatives were devaluation, which the government refused to countenance in 1965, or deflation. Fear of these alternatives was pervasive and powerful.

Comment. In some ways, the British process of gaining acceptance for an incomes policy was peculiarly British. Nevertheless, lessons or implications for other countries can be drawn from the experience. In general, trade unions will tend to oppose the introduction of incomes policies, while employers may be more favor- ably inclined. This stems from the idea, justified or not, that incomes policies will bear more heavily on wages than other forms of incomes and prices. Unions naturally fear that such policies will deprive them of what they usually regard as a fundamental right to engage in collective bargaining without government intervention. Therefore, union consent would seem to depend on circumstances which will cause them to reassess their priorities. Sufficient pressure might be generated by conditions which threaten an important trade union goal, such as full employment, or by a political situation which seriously threatens a party with which the unions are closely allied. Some of the traditional “essential” practices of unions might then be seen as of secondary importance. Or some freedoms might be surrendered in order to maintain others.ll In this way the “freedom” to pursue inflationary increases in money wages might be surrendered in order to maintain freedom from unemployment and to secure larger increases in real incomes. Thus, an incomes policy may be more easily accepted when it is associated with other measures which unions desire. (There is a danger, of course, that the more attractive the package is to unions the less acceptable it may be to employers.)

The more fragmented the trade union organization, and particularly the more fragmented its ideological approach, the greater the difficulties. If unions have little concern about social needs and injustices, they will be but little interested in acting collectively to obtain desired changes. This could mean that the British experience in this respect will be of little direct benefit to American unions. Similarly it will be of less value in those countries where unions are organized in different national federations based on party political or religious affiliations.

11 For a discussion of this, see D. Robinson, Non-Wage Incomes and Prices Policy (Paris: OECD, 1966).

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Determining the Content of Policy In Britain, the original 1965 norm for pay increases was 3 to 3.5

per cent.12 Exceptions were permitted (1) for direct contributions to increased productivity in a particular firm or industry, (2) to stimulate manpower adjustments in the national interest, (3) where there was general recognition that wages or salaries were too low to maintain a reasonable standard of living, and (4) to eliminate inequities between people doing the same type of work. There were similar exceptions to the rule that prices should not be increased, and the conditions under which prices should fall were outlined.

While it is not intended to enter into a discussion of what the content of an incomes policy ought to be, content is clearly relevant to policy implementation.

N o r m . The size of the norm in the original policy statement received but little discussion. The White Paper adopted the rate of growth of personal consumption per head which would be noninflationary if the growth rate assumed in the economic plan were to be achieved.15 This avoided the probably insuperable problems associated with accepting the past trend rate of productivity of 2.5 per cent a year. By taking a forward, optimistic look, rather than a backward, realistic one, the policy was able to offer a figure just big enough to be accepted by the unions.lP

It is probably unavoidable that the publication of a norm or guidepost will create the impression that everyone is entitled to an increase of at least this amount. In some circumstances, the mere act of publishing a norm will lead to some increases being larger than they would have been. This did not happen in Britain. The increases which took place in the early days of the policy were higher than the norm, but there was little if any leverage effect because in almost every case a nonpolicy settlement would have been even higher.

There is an additional danger-perhaps more likely if the policy is not really accepted by trade unions-that a competitive atmosphere is created in which trade union officials decide that they are going to beat the norm merely because it is there. Furthermore, membership rejection of, or dissatisfaction with, the policy, or trade union competition for new recruits, can lead officials to press for above-the-norm increases to demonstrate that they are independent agents acting only in their members’ “interests.”

If the norm is determined each year, there is less danger that the actual increases will be levered up by the published figure. The danger is greatest where the norm is determined for a long period ahead, as by a five-year average, which can create discrepancies if the economy does not flow at a very constant rate.

As the policy continued, the norm in Britain was reduced to zero. Some critics have suggested that the distinction between a zero norm and not having a norm is more appropriate to medieval theology than the serious business of applying an

12 See D. J. Robertson, “Guideposts and Norms: Contrasts in U.S. and U.K. Wage Policy,” Three Banks Review (December, 1966).

13 Cmnd. 2639 (April, 1965). 14Before this statistica1 sleight of hand is condemned, it should be noted that when the

American Council of Economic Advisers discovered that an honest backward look at the productivity trend rate would lead to an increase in the norm, it changes the rules. Of course, this happened later in Britain too.

Implementing an Incomes Policy / 79 incomes policy. However, if there is a belief that the norm is what everyone is entitled to, then there may be some advantage in declaring it to be zero.

Exceptions. It is to be expected that a policy will contain exception clauses. In practice it is unlikely that a policy of granting identical increases to all workers could long be maintained. Once established, the policy must express certain views about “proper” differentials and absolute minimum levels and have some regard for the problem of allocating labor through the wage mechanism. Exceptions, therefore, are necessary. And the more that social justice considerations inftuence the trade union movement, the more important some of these exceptions will be. Similarly, the more that employers believe that relative wage increases play a significant part in the allocation of labor, the more they will press for an exception clause on these grounds.

The four British wage exception clauses, of necessity, are couched in somewhat vague terms. Take, for example, the clause which permits wage increases “where there is general recognition that existing wage and salary levels are too low to maintain a reasonable standard of living.” The government could clarify this exception by announcing a national minimum wage and thus translate “a reasonable standard of living” into a statistic. But such a translation involves daculties. I t is hard enough to calculate minimum income requirements for families of certain sizes in particular locations; it is even harder to compute such a minimum wage for an industry, let alone the whole economy.

If the clauses contain phrases such as “where it is essential in the national interest,” it becomes practically impossible to specify all circumstances in which increases will be permitted. For example, the allocative functions of wage mech- anisms can be expected to undergo some change merely as a result of introducing an incomes policy. More important, the requirements of the economy will change through time so that the allocation of manpower desired at one date will be in- appropriate later on. When an incomes policy is associated with some form of economic planning, e.g., programs for, or even forecasts of desirable, resource allocation, this aspect increases in importance,

The exception clauses in Britain have changed through time. During the period of general prices and incomes standstill (July to December 1966), there were almost no official exceptions for incomes. During the six-month period of severe restraint which followed, two of the original exception clauses were retained, but in a more stringent form. A direct contribution to increased productivity was grounds for a wage increase, but greater emphasis was given to the need for some benefit to the public in the form of lower prices; furthermore, wage increases were to be dependent on a firm assessment of the gains attributable to the workers. The “standard of living” exception was amended so that increases had to be confined to “the lowest paid members of the community” and not passed on to others. The allocation of manpower and the comparability exceptions were in fact maintained in a much more stringent form, but, in practice, most people tended to interpret the policy statement so as to exclude these two criteria. When severe restraint ended on June 30, 1967, the original exception clauses were brought back and have been maintained in the latest policy statement. It is thought that the main reason for keeping them in their original wording was that they had initially been agreed by the two sides of industry, though in somewhat different conditions.

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Comment. No policy which is generally acceptable is likely to be so detailed and precise enough to cover every conceivable contingency. Particularly where there is an attempt to apply certain social or ethical principles, the support of both labor and management can be expected only when objectives are couched in vague terms. For example, a policy which provides preferential treatment for low- paid workers implies a narrowing of wage differentials. Unions may not support such a policy if it is spelled out in detail. Similar considerations apply to employers when a policy provides for some redistribution towards wages, or includes provisions for differential treatment of profits or prices. There will be necessary con- flicts therefore in a voluntary policy.

Machinery for Implementation The government created the National Board for Prices and In-

comes to investigate particular wage or price changes or proposed changes. The Board is composed of independent members, with representatives of the trade unions and employers’ organizations; the latter are appointed for their special knowledge rather than because they are to be advocates. The Board has its own staff, including accountants, experts on industrial relations, economists, and statisticians.

It was intended from the outset that the Board would undertake detailed, often technical, investigations into the conditions surrounding the cases referred to it, and that it should do so independently of government. It was very strongly em- phasized that the Board was independent, though it was to apply the general policy as laid down by government in the light of the facts surrounding each case.

The government wished to avoid creating either a rubber stamp for government policy or an independent policymaking body. The danger in the latter approach was made clear in 1962 when the TUC refused to cooperate with the Con- servative Government’s National Incomes Commission.15 As George Woodcock commented about the new NBPI, “. . . it is entirely different from the National Incomes Commission. N.I.C. was supposed to be a body capable of formulating policy and applying policy from the top. It was to take over the function of government, trade unions and employers in determining what that policy was.” lo

From its inception the Board has had powers to examine only those cases referred to it by the appropriate rninister.l7 Moreover, once the Board has issued its report, it has no further powers or “interests” in a case, unless it involves a government-requested continuing review. The Board may also be asked to report on general issues or problems.l* In all cases it gives public reasons for its decisions.

The peculiar position of the Board gives it a considerable degree of strength. Its independence is accepted and its reports are not necessarily regarded as being

15 See TUC Annual Reports for 1962 and 1963. For a brief comparison of the NBPI and NIC, see Robinson, “Non-Wage Incomes . . .,” and Corina, op. cit. There were other reasons for the TUC’s refusal to cooperate with NIC.

16 In Report of a Conference of Executive Committees . . . (1965). 17 The Board may let it be known that it would like the government to refer a puticular

case to it. 18 Examples are Productivity Bargaining, Report No. 36; and Distributors’ Margins in Re-

lation to Manufacturers’ Recommended Prices, Report No. 55, specially referred by the government after devaluation. The broad questions of payments by results and job evaluation systems are also under examination.

Implementing an Incomes Policy / 81 the “official” government view. I t is quite conceivable that the government might reject a Boards report. However, apart from a compulsory pause of four weeks to allow the government to examine a wage or price increase or proposal (the process of screening is called vetting in Britain), the 1966 and 1967 Acts allow the government to impose a standstill only if, and when, the case is referred to the Board.

The greater the adherence to the policy, the more preliminary vetting has to be done. Conceivably, the sheer pressure of work could lead to rule-of-thumb approaches which, in tum, might result in some difference of treatment between those cases dealt with exclusively by the vetting system and those passed to the Board for detailed examination and public report. This danger would be lessened if the examining body was also responsible for vetting, but, at the same time, power would be shifted away from the government towards the independent body. No matter who makes the decision, it is obviously desirable that there be some underlying strategy behind the selection of references. British procedure keeps this strategy in the hands of the government.

Comment. Once it is accepted that there wiIl be situations where a government may wish to evaluate proposed wage or price increases, it may be more conducive to the continuation of broad policy agreement between industry and government to appoint an independent assessor. Such a body tends to draw criticism to itself rather than the government in specific cases. Furthermore, general commitment to the policy may be better maintained if it is clear that the government is not trying to determine the outcome of each and every decision. In some economies it might be thought to be more in keeping with traditional political and economic behavior for government to be directly concerned with detailed application. However, it is doubtful that such a technique could become the modus operandi of a prices and incomes policy, particularly in a large economy where there are thousands, if not millions, of wage and price decisions each year.

Whatever the machinery, investigation of every single wage and price change, particularly if price changes are also held, as they should be, to include quality changes is probably impossible. Such examination would be prohibitive in terms of the manpower involved, even if it were not held to be prohibitive in terms of state intrusion into a democratic society. The machinery ought to be capable of dealing with those cases which are particularly iduential, to be sufficiently flexible to allow quick examination, and to be a light enough burden on the economy so that efficiency is increased rather than reduced.

Technical side of the machinery. Although the government’s first White Paper of February 1965 envisaged that the Board would operate in separate Prices and Incomes Divisions, from the beginning the Board regarded itself as a single unit. In addition to fu11- and part-time members, provision was made far speciaI panels of businessmen and trade unionists to assist with the investigation of particular cases. This can have two advantages. First, it is possible to call on special experience where appropriate, although it has not been the practice to use panel members from the industry concerned. Second, it allows the TUC and Confederation of British Industries, who put forward the lists of panel members, to keep in touch with the work of the Board in a direct way.l9

19 An account of the Board‘s methods is given in General Report, ApriZ 1965 to JuZy 1966, NBPI, Cmnd. 3087 (August, 1966).

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It has been necessary for the Board to undertake detailed surveys in particular cases. Although it has statutory entitlement to call for information from those concerned, the Board has relied on voluntary cooperation. The extent and nature of special surveys must be related to existing statistical information in a particular country, but it is probable that the application of an incomes policy will always require additional information. Government departments cannot normally persuade employers to provide, on a general and continuing basis, the sort of detailed information needed. Moreover, a prices and incomes policy requires policy- geared data rather than the information-geared data normally collected by government.

Confidentiality is also an issue. The Board has held no public hearings, nor does it release copies of statements submitted to it, although the parties themselves may do so. It is much easier to obtain confidential information from firms when they are satisfied that their competitors will not be given details of their costs. Not all parties to the Boards references agree with this approach. The Electrical Trades Union has stated, “On this question of procedure, we would also draw attention to the fact that the N.B.P.I. Panel asked for and received evidence from sources unknown to the parties to the agreement. The Board subsequently used this material in forming and justifying its judgment on our agreement. . . . We were not shown copies of any of these documents and, therefore, have had no opportunity to correct misunderstandings or refute arguments, some of which the Board apparently found convincing.” 2o

Implementation of the Policy Notification. The original policy statement contained no provision

for prior notification of price and income changes, but it quickly became apparent that such a procedure was necessary. Investigation after a change is implemented is simply an inquest. Even if a decision cannot be implemented without approval, if labor and management have reached agreement, both parties are likely to present a united front against revision. The government therefore established a voluntary “early warning system” in November 1965.2i Firms were asked to give four weeks’ notice of intention to increase prices; no action by government during this period meant that the firms were free to go ahead, but government approval of the price increase was not thereby implied. Similarly, notice of wage claims was requested, except those affecting small numbers. If the government decided within the four weeks to refer a proposed price or wage increase to the NBPI, it was expected that a voluntary standstill would then take place and that the Board would report within three months. Not all prices were subject to the arrangements; the White Paper listed some 100 commodities. On the wages side, all noti- fications were to go to the Ministry of Labour. However, the TUC established its own vetting scheme for wage claims from affiliated organizations, and this arrangement was incorporated into the procedure.

The role of the TUC. Traditionally, British trade unions have been unwilling to surrender much autonomy to their central organization, the Trades Union Con- gress. However, it was apparent by 1966 that the government was concerned by the relative ineffectiveness of its incomes policy and was contemplating legislation.

20 Further Submission on Trade Union and Employers’ Associations by the Electrical Trades Union, Royal Commission on Trade Unions and Employers’ Associations (January, 1967).

21 Prices and Incomes P o k y : An “Early Warning System,” Cmnd. 2808.

Implementing an Incomes Policy / 83 Under this pressure, the unions decided to give the TUC General Council the power to strengthen the voluntary nature of the policy in the hope that statutory powers would not be used. Their view was put by Frank Cousins, General Secre- tary of the Transport and General Workers Union, “If the trade unions themselves are going to surrender their authority, I suggest they will want to surrender it to this body here [the TUC and its General Council] and not to a Government.”22

In September 1965, the TUC had set up a special committee of General Coun- cil members to vet wage claims. Between May 1967 and March 1968 the committee considered 460 claims affecting a little over ten and a half million workers.23 In 158 cases the committee had no objection to the unions proceeding with their claims. Another 199 cases were thought to be incompatible with the policy, but in 62 of these some increase was thought to be compatibIe given some change in the amount claimed or the timing, in 10 only part of the claim was thought to be compatible, and in 41 increases were thought appropriate only for workers on or near basic rates. Of the rest, in 38 cases additional information was requested before a view could be formed; in 25 cases representatives of the unions were asked to meet the committee for discussions; 3 referred to the civil service where reports of a special Pay Research Unit form the basis for negotiations on wage and salary changes; in 2 cases a report of the NBPI was pending; in 35 cases there was no objection to negotiations proceeding, but a settlement was to be deferred until at least 12 months after the last settlement.

By any standards this was a remarkable development in the role of the TUC and the attitudes of affiliated unions. It involved not only a shift in power and authority between the central organization and the affiliated unions but also a substantial change in the methods of processing wage claims. Naturally enough there were teething problems, but, on the whole, these were regarded as stemming more from the changed procedure than from any unwillingness to cooperate.

Incomes policies seek not only to change the outcome of wage bargaining but also to change the criteria by which a settlement is made. It is no longer possible for unions to rely on some compromise emerging from free-for-all collective bargaining. Claims must be formulated in quantifiable terms. A high premium is placed on rational and factual argumentation, and far less weight, if any, is given to industrial strength. (No policy statement of any country allows exceptional above-the-norm increases in cases where unions might engage in strikes.)

It is not easy for trade unions suddenly to elevate the importance of statistical and factual analysis in this way. Most British trade unions have very small, if any research departments and the researchers often have little importance in the trade union hierarchy.24 But part of the price trade unions must pay for participating in an incomes policy, particularly one which is part of and coordinated with general economic policies containing some element of economic planning, is that they must operate within the broad framework of economic analysis and value judg-

22 TUC, Annual Report (1966), p. 464. Parenthesis added. 23 The afEliated membership of the TUC in 1967 was 8,867,522, but claims affect a larger

number of people as nonmembers also receive increases. The total working population was 22 to 23 million.

“There are exceptions to this. Civil service unions have always had to pay considerable attention to research because their methods of wage determination em hasize rational argument rather than economic force. However, the two large general worfers’ unions also have well-developed research units.

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ments accepted by the economic planners. This requirement may have one of two main effects. It may lead to radical changes in the role of trade union bargaining so that not only are the procedural aspects of negotiation changed, but the area of bargaining is extended in an effort to seek some explicit agreements with government and employers about the distribution of national income.25 Or unions may withdraw from policy participation as the required changes in attitudes and behavior impose too many tensions and strains on the existing organization and personnel.

In addition to the changes imposed on individual trade unions, the establishment of a vetting committee by a central trade union organization necessitates changes in that organization. The staff must acquire expertise in the details and assessment of wage negotiations, wage structures, and similar subjects at the pIant level. This is an area in which most central trade union organizations have had no previous experience. In addition, the central organization needs a large amount of statistical information in order to evaluate claims for special treatment.

Similar problems would arise on the employers’ side should they also seek to establish vetting machinery, While employers may act in concert in national, industrywide, or local wage bargaining, it is thought that their collective identity disappears when it comes to prices; employers are then competing against each other and not against the trade union side of a negotiating table. Undoubtedly there would be immense problems of confidentiality if a firm had to notify a proposed price increase to a committee on which other employers were sitting. The more so if the firm, as required by the policy, had to give detailed reasons for a price increase, including details of costs and production levels and future expan- sion plans. Thus, although some critics have attacked employers’ organizations for failing to cooperate with the policy to the same extent that unions have, it is probably the case that there are important differences which make it extremely difficult, if not impossible, for similar treatment to be given to boh26

The difficulties of voluntary vetting. After the six-month period of severe restraint ended in June 1967, official policy provided for a zero norm, but with the exceptions included in the original policy statement agreed on by the TUC and CBI. What rules would the TUC’s vetting committee now follow? The position of the General Council differed from that of the government in the interpretation of some of the exception clauses, particularly that affecting low-paid workers. By and large, the TUC‘s criteria were less severe, or more flexible, than the government’s.

Such divergence is always a possibility with voluntary vetting. To some extent this is due to differences in time-horizons. As incomes policies are often introduced in times of economic emergency, a government may feel that it does not have the time for a gradual transition. On the other hand, trade unions will be very aware of the dangers involved in making sudden changes and will emphasize gradual- ness. As George Woodcock put it, “This is going to be a long, delicate and painful business.” We “see an incomes and prices policy as something which, starting very

20 Recent British developments in this area will be considered below. 26 If employers did vet price changes it would be interesting to see whether their present

critics would then criticize them for operating a price ring or participating in collusion. There could also be some very interesting complications with restrictive trade practices and antitrust legislative provisions.

Implementing an Incomes Policy / 85 modestly indeed, might become an accepted and established fact over a period of years. . . . Since a policy of this kind involves a change in attitudes, a Merent view of powers, functions and responsibility, it is bound to take a long time to develop, We cannot at any stage call upon people to do more than, as ordinary human beings, it is possible for them to do.” 27

The British Government took somewhat of a long view in that it did not try to impose a complete wage freeze in 1965, but sought to establish a voluntary policy. However, subsequent events showed that rather quicker results were expected; the long-term view was found to be too long. Woodcock was aware that the unions were proceeding slower than the government would like, and, indeed, slower perhaps than they ought. “This is-I insist-a modest first step, far more modest than the government wants, far more modest than the circumstances demand, but we in the trade union Movement know where authority lies and we know the limits of power that can be exercised.” The philosophy underlying Woodcock‘s statement remained the same even after the progress made through the TUC vetting committee. In 1967 he said that the vetting system had been “remarkably successful. Of course, we had to move slowly; we had to be flexible, we had to use some of those shoddy compromises of which I spoke. . . . We moved with caution and persuasion, seeking to get what we wanted by argument, by agreement and by consent.”Zs

The reason for this attitude is, of course, the unions’ fear that they will lose membership support. Restraint in terms of increases in money wages and the additional restraint imposed on certain groups of workers in order to secure desired preferential treatment for other groups are not changes easily accepted by the rank and file, especially where workers have already made an agreement with employers. Then, too, some trade unions will move more slowly than others. “You can easily hold those 174 unions together if you do damn all. I t is only when you are asking them to do something that you get into difficulties.”29 Trade unions will, therefore, stress the need for caution in order to protect their continued sur- vival as representative organizations. Governments may accept this, but still believe that unions are being unduly cautious.

There will almost inevitably be other sorts of conflict arising from a voluntary vetting system. Unions will wish to place greater stress on correcting injustices, or avoiding the creation of new ones. Central government will be more concerned with maintaining the publicly declared policy as standard treatment for similar cases and applying “objective” criteria to define these cases. Unions, on the other hand, may want an approach which allows some intangible factors to influence the outcome. The issue might be seen as, can a union-operated vetting system be sufficiently tough to hold the policy line? Or will flexibility mean that more and more concessions will be made until the official norm is left far behind? There is, of course, always a danger that self-regulation will be less rigid and severe than externally based regulation; so skeptics might conclude that central trade union vetting must always lead to higher wage increases than would otherwise have

27 Report of Conference of Executive Committees . . . (1965). 28 TUC, Special Conference (1967) 29 George Woodcock in Report of a Conference of Executive Committees . . . (1965).

86 / DEREK ROBINSON

taken place. But, while they may be higher than the norm, will they be higher than they would have been without a voluntary vetting system?

Finally, what happens if the British Government refers to the NBPI a wage increase which has been approved by the TUC vetting committee? This problem has not yet arisen, but supposedly the Board is bound to apply the government’s policy. What would be the unions’ attitude to the NBPI if it came to a different conclusion from the TUC‘s vetting committee? Would the unions continue to cooperate? On the other hand, if the government does not refer a controversial settlement to the Board, it is in effect privately accepting the TUC‘s standards while publicly advocating different ones. What then happens to those wage settlements affecting people who are not in unions affiliated to the TUC?

Comment. Unless the application of a policy is to take the form of a series of inquests, it is necessary to establish some official system of notification of intention to change prices and pay. While it is true that in a democratic society a policy can succeed only if it is voluntarily accepted by the majority-which seems to imply that most decisions will conform to the policy requirements or the policy will have to be abandoned-there may still be a number of occasions when a policy agency will need to comment on specific proposals. This need may arise where there is genuine uncertainty over policy application in cases where a particular group is ignoring the policy. It is hardly likely that aZZ decisions will conform to the policy no matter how broadly based the voluntary support. During early stages particularly, success may hinge on a government’s ability to demonstrate that an uncooperative minority is not benefiting as a result of the majority’s acceptance of the policy requirements,

TUC voluntary notification and vetting systems greatly assist policy implementation. They involve the trade unions closely and emphasize self-restraint. Such voluntary vetting is probably necessary if the goal of a long-term, voluntarily accepted and applied incomes policy is to be secured. On the other hand, there is the danger that the voluntary machinery will adopt different standards. To a large extent the outcome depends on the motives of the voluntary vetting body. For example, are claims for greater flexibility based on a realistic assessment of what can be done at particular points in time, or are they “excuses” designed to avoid the self-discipline required for an incomes policy?

In Britain, it has not so far been necessary to raise the question of applying sanctions against transgressors. Administrative directions and laws have been obeyed or challenged in the courts rather than on the picket line. The British Government has made very clear that it does not wish to apply sanctions, but there might still be an advantage in having them available. Their existence might encourage acceptance of the policy or provide a publicly acceptable reason for trade unions and their leaders to agree to reduce money wage increases more than would otherwise be possible.

The Emerging Relationship Between Government and Unions An incomes policy changes the relations between unions and gov-

ernment significantly. Most important, it injects a third party into collective bargaining. The state’s traditional peacekeeping role gives way to attempts to ensure that labor-management decisions are conducive to the public good. And, with

Implementing an Incomes Policy / 87 increasing public concern over the outcome of collective bargaining comes a trade union concern over the content of public economic and social policy. Increasingly European trade unions are realizing that they cannot obtain many of their basic objectives through orthodox collective bargaining. They are concluding, for example, that state intervention is required to redistribute income towards workers, either through the prices and profits side of an incomes policy or through general economic policies. Some European unions are advocating capital-sharing schemes to obtain redistribution, but these too need appropriate government policies for success. It may be inevitable that the more a government advocates restraint in money wage settlements by drawing attention to the macro-economic effects of inflationary settlements, the more trade unions will focus on macro-level economic problems and issues. For both these reasons-disenchantment with traditional methods of bargaining and increasing pressure to take account of broader issues and policies-unions will tend to pay more attention to general government policies.

New bargaining relationships may arise, but they will be tripartite relationships between government, unions, and employers. In return for securing certain advantages, trade unions will have to give way in other government policy areas. “Unless trade unionists are willing to play their part they have no right to expect the government to pursue the growth poIicies advocated [in the TUC Economic Review]. Equally, trade unions will only be able to persuade their members to abandon the methods which in the past they have adopted for the defence of their standards and jobs, provided that the government is prepared to reshape its own economic strategy.” so To bargain with government in this way, trade unions need clearly defined general economic policies. “When Government comes forward with proposals . . . do give us something to be able to talk back to them with. Do not put us in the position where all we can say is that we don’t like it. . . .”31

The TUC has now produced a general economic policy and strategy with which to bargain with the government-the Economic Reoiew, 1968, a compre- hensive and detailed examination of the British economy and its problems. The Review sets out desirable economic policies for the future and forecasts a higher rate of economic growth than that anticipated by the government. But the important point is that the unions have accepted the need to discuss wage problems within the framework of the general economic situation of the country and have abandoned the traditional bilateral sectional bargaining approach. “Increasingly we have to fit ourselves into a world, into an economy in which talk about a free- for-all is as completely dead and utterly irrelevant as the Dodo.”32

The Review also proposes structural changes in bargaining, e.g., that the TUC General Council explore “the possibility of synchronising the most important [wage] claims with a view to putting to the 1969 Conference of Executives proposals for discussing claims in the autumn of 1969, which should be submitted simultaneously in the spring of 1970.”33 Not all unions are prepared to go this far.

30 TUC Economk Review of 1968, par. 79, 31 George Woodcock moving adoption of the Economic Review at a Special Conference,

32 George Woodcock, TUC, Spechl Conference (February, 1908). 33 TUC Economic Review of 1968, pars. 307,218-220.

February 28,1968.

88 / DEREK ROBINSON

As an official said, “Determination of policy in respect of wages and other matters in our organisation is the prerogative of a democratically elected national committee. The suggestion that we surrender our autonomy and independence of action is one which we find totally unacceptable.” 34

Clearly, a transformation of bargaining methods, structure, and content will be neither immediate nor painless. There has been, and will be opposition. Union officials, who may have been highly successful in getting wage increases in the old free-for-all circumstances, may understandably fear and reject the new type of bargaining, And it does not necessarily follow that the union opponents of change are acting against the long-term interests of their members. Quite apart from genuine differences in views about the basic nature of a capitalist or mixed economy, there may be sound sectional-interest reasons for preferring the continuation of existing procedures. Within a framework of economic growth and social justice, an incomes policy will cause some groups to do less well, at least relative to other groups, than they would in a free-for-all.

The TUC Economic Review was accepted at a special conference by a majority of 536,000 out of 8,704,000 votes cast, a relatively slight margin for such an important document. It is too soon to say whether changes suggested by the Re- view will be implemented. However, it is almost certain that a return to exactly the same old ways is not possible. Unions may be unhappy about the incomes policy or dissatisfied with the results of other economic and social policies, but it seems clear that the free-for-all is no longer a viable alternative.

Conceivably the unions might seek a different form of accommodation with the government, but it would probably have to take place at a lower level of demand and employment. Essentially the trade unions are faced with the choice of making the incomes policy work-with all the changes, tensions, and pressures that this involves-or accepting the alternative. Without the restraints on inflation provided by an incomes policy, the government could not permit the very high level of employment which is now a part of British expectations. The recent shift in emphasis towards productivity bargaining, which would permit wage increases in excess of the 3.5 per cent ceiling, should help overcome the growing belief that the policy is just another form of wage control. If this positive side can be encour- aged, it is possible that the changes in attitudes, which are a necessary condition for changes in institutions, will be forthcoming

Unions will continue to press for greater emphasis on social policies and government-provided social services. They will also want tax changes and new plans for the distribution of the fruits of economic growth. If a bargaining relationship develops, with the two sides having reserve powers-government the threat of

34H. Scanlon, recently elected President of the Amalgamated Engineering Union, at the Special Conference in February 1968. Opposition to the TUC‘s roposals was not limited to the organizational aspects. There were critics who objected to the gasic change in bargaining and the new framework in which this would take place. Thus, D. McGarvey of the Amalgamated Society of Boilermakers, Shipwrights, Blacksmiths, and Structural Workers said, ‘ a lot has been said about the economics of this argument. I do not profess to be able to go into it, because if there is anything I dislike more than an intellectual it is two intellectuals. . . . The proof of the pudding is this, that probably some of the speeches you have been listening to here to-day have been drawn up by the various research departments of the speakers, and do you want more proof than that?”

Implementing an Incomes Policy / 89

unemployment and unions the threat of noncooperation in the incomes policy- the employers’ organizations will probably also have to change their approach. They will need to enter into the bargaining relationship in order to defend their interests. We might then see the same tensions and stresses develop in their organizations.

Comment. The establishment of an incomes policy is such a traumatic shock to traditional wage and price determination procedures that things can never be the same again. It is no longer possible to argue that British unions merely react to economic circumstances, for they have accepted the fact that their actions have relevance to inflation and general economic conditions. DifFiculties may arise which will destroy the temporary modus vivendi agreed by the two (or three) parties. But in the last resort Woodcock will be proved right: the free-for-all is dead and irrelevant. This is the great lesson for Britain which emerges from the developments over the past three and a half years.

Conclusion A voluntary incomes policy cannot be introduced in a hurry. Re-

quired changes in attitudes, behavior, and institutions are too great to be effected overnight. Still, if left to their own initiative, trade unions may not move fast enough. They are likely to overemphasize the dangers and difficulties of changing too quickly, to the point of changing too little, too slowly. Governments, on the other hand, will almost always want quick results, but these can be obtained only by forfeiting hope of the acceptance of a long-term policy. A freeze can be imposed and be effective for a time, but if this is all the policy consists of, it will disintegrate fairly quickly. Yet if there is no urgency and no compulsory sanctions, or threat of them, behind a government’s approach, there may be no progress.

Hindsight may suggest that the British Government should have moved much faster and sooner, applying compulsory powers at an earlier stage and with greater coverage. But it does not follow that because certain changes became acceptable at particular points in time they would have been acceptable sooner. Nor does it follow that additional compulsory powers would have been more effective in the longer run. However, compulsion achieves immediate economic effects and it may be that it could be used a little more to influence long-term structural and behavioral changes. British experience suggests that this might be so if the tripartite bargaining relationship becomes more overt and the bargain more explicit. Legislation currently before Parliament suggests that more compulsion and penalties will be introduced; however, they will apply only to a minority of pay and price decisions.

While compulsory powers may be appropriate, or even necessary, to induce conformity to an agreed policy, they cannot create the conditions needed for a voluntary policy. Sanctions may speed up the process of adjustment to new behavioral and attitudinal criteria, but they cannot themselves establish the changes. These will occur only when the trade unions are convinced that they can obtain their basic objectives better by changing their behavior. For this to happen, unions must first be clear what their objectives are and which are really crucial.

This is why an incomes policy of the British variety should not be judged solely, or even primarily, by its short-term effects in reducing the rate of increase

90 / DEREK ROBINSON

of money wages. It may well be that its significant contributions lie in the field of social engineering, i.e., the extension of government by consent into the diiEcult field of industrial relations and associated economic problems. The policy's most important effect on inflation may be to increase the rate of productivity growth, rather than just reducing the rate of increase of money wages. This makes the evaluation of an incomes policy much more difficult. The measurable effects on such things as productivity will take some time to appear. Already the effects on trade union organization and behavior are apparent. The voluntary transfer of power to the central organization and the extension of the TUCs concern over broad economic and social policies, as represented by the Economic Reoiew, demonstrate the extent to which the radical transformation of the trade union movement is a very real possibility. Even so it can be argued that the price paid by the British Government for such changes is too high-a continuation of inflation, increasing unemployment, and devaluation. On the other hand, we are unable to tell what would have been the price of failing to establish an incomes policy.

The major lessons for other countries are these. Some externally generated shock (i.e., external to the unions) is probably necessary to persuade the trade unions to participate, or even consider participating, in a voluntary prices and incomes policy. But even though behavior may change in a crisis, it does not follow that attitudes also change. Once conditions return to normal, so will trade union attitudes and behavior. The crisis approach quickly uses up the goodwill of sup- porters. Indeed if the policy is seen only as a crisis measure, it is probably better to go for an absolute freeze; if goodwill is going to be lost, it might be better to obtain as much economic gain in the process as possible. But if the policy is seen as long term, then the changes necessary in union behavior must be recognized for what they arefundamental changes in the functioning of large and powerful sectional-interest pressure groups.

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Implementing an Incomes Policy

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